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Tuesday, June 1, 2010

Car Warranty Shuffle

Trying to get a business to honour its warranty can be a frustrating experience. A friend of mine who I'll call Kevin encountered problems with the paint job on his car, and this has lead to a type of run-around that I hadn't seen before.

When Kevin bought his car, he paid for an extended warranty on the car's paint job. We can debate whether this type of warranty is worth buying, but in this case a serious problem did come up with the paint job on Kevin's car. It turns out that paying for the warranty worked out well in this case, or so Kevin thought.

When he took the car to the dealership where he bought it, they told Kevin that he'd have to contact the insurance company that holds the policy first to get authorization to go ahead with a repair. You might think that the dealership should handle this detail given that Kevin never dealt directly with the insurance company in the first place.

Kevin phoned the insurance company with his copy of the warranty contract in hand and was told that they had no record of his policy. They had records of the contracts numbered just before his and just after his, but not his number.

The person at the insurance company went on to say that it is common for car dealerships to just pocket the premiums and take on the risk themselves without ever sending any paperwork to the insurance company. This is the first time I've heard of this trick, but it isn't too surprising once you think about it. If these warranties are mostly profit, it makes sense that the dealership would want this money.

When Kevin went back to the dealership to try to straighten out this mess, they told him that they had no record of the insurance coverage on his paint job either. This leaves Kevin holding a warranty contract, but apparently unable to get anyone to honour it.

It is impossible to know whether the dealership really did just pocket Kevin's premium, but it would be interesting to know whether this really is a common practice. Consumers might think twice about buying extended warranties if they knew that they might end up in the same position Kevin is in.